Steinar Holden - Profile on Academia.edu (original) (raw)
Papers by Steinar Holden
We gratefully acknowledge the support and hospitality of our hosts, the European Central Bank. Th... more We gratefully acknowledge the support and hospitality of our hosts, the European Central Bank. The views expressed in this paper are those of the author(s) and not those of the funding organization(s) nor of CEPR, which takes
RÉSUMÉ ............................................................................................. more RÉSUMÉ ............................................................................................................................ 2 THE UNEMPLOYMENT PROBLEM A NORWEGIAN PERSPECTIVE................................ .......... 5
What is the economic role of credit rating agencies (CRAs), and how should they be paid? We study... more What is the economic role of credit rating agencies (CRAs), and how should they be paid? We study how credit rating agencies (CRAs) can serve as coordination device, and thereby prevent or cause ineffi cient liquidation of projects with a long horizon. We show that if CRAs can impact real outcomes, then their reputation concerns hamper truthful revelation of information, and, as a consequence, limit their ratings’informational content. We then show that equilibrium behavior is shaped by two prominent regimes: (i) an ‘optimistic’regime in which CRAs tend to give good ratings, and (ii) a ‘pessimistic’regime in which CRAs tend to give bad ratings. But both regimes are self-defeating: (i) only bad ratings do affect investors’ behavior in an optimistic regime while (ii) only good ratings affect investors’ behavior in a pessimistic regime. Existing evidence on the environment preceding the financial turmoil starting in 2007-2008 fits with our characterization of an optimistic regime. Henc...
This paper treats the oil market as an oligopoly with a competitive fringe. The oligopoly is assu... more This paper treats the oil market as an oligopoly with a competitive fringe. The oligopoly is assumed to consist of Egypt, Oman, Mexico, Malaysia and Norway plus all OPEC members. The remaining oil producing countries are included in a fringe which by assumption takes the oil price development as exogenously given. Outcomes with varying degrees of collusion within the oligopoly are specified. Intermediate cases are also studied, such as complete or partial cooperation within OPEC, but no cooperation between OPEC and any other countries in the oligopoly. The model is implemented in the PCbased MODLER software, and empirical results from the simulations on the different model versions are presented. Not to be quoted without permission from author(s). Comments welcome. THE OIL MARKET AS AN OLIGOPOLY Kjell Berger, Michael Hoel, Steinar Holden and . Øystein Olsen *
SSRN Electronic Journal, 2013
We examine fiscal adjustment episodes in 24 OECD countries in order to find how austerity affects... more We examine fiscal adjustment episodes in 24 OECD countries in order to find how austerity affects debt and growth, and whether the choice of fiscal instrument matters for the results. Influential existing studies argue that spending cuts are more likely to successfully reduce debt and enhance economic growth than tax increases. Our main innovations over these studies are to better account for initial conditions and to employ a novel and more precise measure of actual changes in fiscal policy. We find that whether a fiscal adjustment is successful in reducing debt depends on whether the adjustment was sufficiently large to remove the budget deficit. We find no indication that it matters whether the adjustment is achieved via spending cuts or tax increases, and this conclusion holds also for the effect on economic growth.
SSRN Electronic Journal, 2012
Fra 1999 og senere er publikasjonene tilgjengelige på www.norges-bank.no Working papers inneholde... more Fra 1999 og senere er publikasjonene tilgjengelige på www.norges-bank.no Working papers inneholder forskningsarbeider og utredninger som vanligvis ikke har fått sin endelige form. Hensikten er blant annet at forfatteren kan motta kommentarer fra kolleger og andre interesserte. Synspunkter og konklusjoner i arbeidene står for forfatternes regning.
SSRN Electronic Journal, 2000
International comparisons show that countries with coordinated wage setting generally have lower ... more International comparisons show that countries with coordinated wage setting generally have lower unemployment than countries with less coordinated wage setting. This paper argues that the monetary regime may affect whether coordination among many wage setters is feasible. A strict monetary regime, like a country-specific inflation target, to some extent disciplines wage setters, so that the consequences of uncoordinated wage setting are less detrimental than under a more passive monetary regime (eg a monetary union). Thus, the gains from coordination are larger under a passive regime. Under some circumstances a passive regime may induce cooperation in wage setting, and thus lower unemployment, when a stricter regime would not.
SSRN Electronic Journal, 2012
During the last 20 years, the importance of a number of behavioral features have been widely acce... more During the last 20 years, the importance of a number of behavioral features have been widely accepted within economics, and they are now regularly included in standard macro models. Where has this development led us? I argue that the insights from behavioral economics have led to important progress in our understanding of macroeconomic phenomena. One of the most important is the effect of fairness considerations on wages and employment relationships. Another important insight is that most or all individuals are affected by various behavioral features, which should be taken into account in the design of saving plans and pension schemes. A third insight is that plausible macro models provide large scope for important effects of sentiments and psychological factors. Future research should follow different routes, like incorporating behavioral features in standard models, improving estimated empirical models, and learning from case studies and historical episodes.
SSRN Electronic Journal, 2009
A number of recent studies have documented extensive downward nominal wage rigidity (DNWR) for jo... more A number of recent studies have documented extensive downward nominal wage rigidity (DNWR) for job stayers in many OECD countries. However, DNWR for individual workers may induce downward rigidity or "a floor" for the aggregate wage growth at positive or negative levels. Aggregate wage growth may be below zero because of compositional effects, for example that old, high-wage workers are replaced by young low-wage workers. DNWR may also lead to a positive growth in aggregate wages because of changes in relative wages. We explore industry data for 19 OECD countries, over the period 1971-2006. We find evidence for floors on nominal wage growth at 6 percent and lower in the 1970s and 1980s, at one percent in the 1990s, and at 0.5 percent in the 2000s. Furthermore, we find that DNWR is stronger in country-years with strict employment protection legislation, high union density, centralised wage setting and high inflation.
SSRN Electronic Journal, 1998
Within a simple formal model, we show that there is a link between workers' consumption patterns ... more Within a simple formal model, we show that there is a link between workers' consumption patterns and their preferred real wage. A large budget share of illiquid durable consumption goods (such as houses and cars) makes workers more willing to accept a low wage in order to reduce the probability of unemployment, but less willing to lower the real wage if labor demand unexpectedly falls. Moreover, as long as durable consumption goods are financed through imperfectly indexed credit, the budget share of illiquid durable goods affects the impact of inflation on the real wage. These predictions are confronted with data from sixteen OECD countries. We find that high household indebtedness lowers the natural rate of unemployment and increases real and nominal wage rigidity.
SSRN Electronic Journal, 2011
We investigate empirically the effect of government purchases on unemployment in 20 OECD countrie... more We investigate empirically the effect of government purchases on unemployment in 20 OECD countries, for the period 1960-2007. Compared to earlier studies we use a data set with more variation in unemployment, and which allows for controlling for a host of factors that influence the effect of government purchases. We find that increased government purchases lead to lower unemployment; an increase equal to one percent of GDP reduces unemployment by 0.2 percentage point in the same year. The effect is greater in downturns than in booms, and also greater under a fixed exchange rate regime than under a floating regime. JEL-Code: E620, H300.
SSRN Electronic Journal, 2014
Over the past 20 years, macroeconomists have incorporated more and more results from behavioral e... more Over the past 20 years, macroeconomists have incorporated more and more results from behavioral economics into their models. We argue that doing so has helped fixed deficiencies with standard approaches to modeling the economy-for example, the counterfactual absence of inertia in the standard New Keynesian model of economic fluctuations. We survey efforts to use behavioral economics to improve some of the underpinnings of the New Keynesian model-specifically, consumption, the formation of expectations and determination of wages and employment that underlie aggregate supply, and the possibility of multiple equilibria and asset price bubbles. We also discuss more broadly the advantages and disadvantages of using behavioral economics features in macroeconomic models.
SSRN Electronic Journal, 2003
Most wage-contracting models with rational expectations fail to replicate the persistence in infl... more Most wage-contracting models with rational expectations fail to replicate the persistence in inflation observed in the data. We argue that coordination problems and multiple equilibria are the keys to explaining inflation persistence. We develop a wage-contracting model in which workers are concerned about being treated fairly. This model generates a continuum of equilibria (consistent with a range for the rate of unemployment), where workers want to match the wage set by other workers. If workers' expectations are based on the past behavior of wage growth, these beliefs will be self-fulfilling and thus rational. Based on quarterly U.S. data over the period 1955-2000, we find evidence that inflation is more persistent between unemployment rates of 4.7 and 6.5 percent, than outside these bounds, as predicted by our model.
SSRN Electronic Journal, 2011
We study a search model with firing cost. We show that there exists an equilibrium with discrimin... more We study a search model with firing cost. We show that there exists an equilibrium with discriminatory hiring standards of worker only differing in an observable characteristic determining their type. Even though the firm can observe the workers' expected productivity at the hiring stage, it still may condition its hiring standard on group belonging, due to feedback effects of other firm' hiring standards. The model predicts higher unemployment rates, stricter hiring standards, longer tenure for discriminated workers and a positive relation between employment protection and relative unemployment rates for discriminated workers.
Tidsskrift for samfunnsforskning
What is the role of “large players”, e.g., hedge funds, in speculative attacks? Recent work sugge... more What is the role of “large players”, e.g., hedge funds, in speculative attacks? Recent work suggests that large players move early to induce smaller agents to attack. However, many observers argue that large players move late so as to benefit from interest rate differentials. We propose a model where large players can do both. Using data on currency trading by foreign (large) and local (small) players, we find that foreign players moved last in three attacks on the Norwegian krone during the 1990s. During the attack on the Swedish krona after the Russian moratorium in 1998, foreign players moved early. Gains by delaying attack were small, however, since interest rates did not increase.
2NON-COOPERATIVE Wage Bargatntng
The paper argtues that the Rubinstein perfect informat ion inf in j- te-hor izon al- ternat ing-o... more The paper argtues that the Rubinstein perfect informat ion inf in j- te-hor izon al- ternat ing-of fers model is problemat ic when appl ied to wage negot iat ions. A str ike or any other industr iaf act ion is not an automat ic consequence of a delay in reaching an agreement, because product ion can cont inue as normal- a l-so when negot iat ions take place. An inf in i te-hor izon al ternat ing-of fers model incorporat ing the choice of cal l ing a str ike is devel-oped. I t is shown that in th is model there j-s no longer a unique subgame perfect equi l ibr ium, and that str ikes wi th a length in real t i rne can occur in equi l ibr ium.
We provide a new explanation for why firms pay for general training in a competitive labor market... more We provide a new explanation for why firms pay for general training in a competitive labor market. If firms are unable to tailor individual wages to ability, for informational or institutional reasons, they will pay for general training in order to attract better quality workers. The market provision of training may well exceed the first best level. Our explanation relies on wage compression within skill categories, while imperfect competition based explanations rely on wage compression across skill categories. JEL Categories: J31, D82. ∗Thanks to Alison Booth, Espen Moen and seminar participants at Essex for useful comments. V. Bhaskar thanks the Economic and Social Research Council, UK for its
We gratefully acknowledge the support and hospitality of our hosts, the European Central Bank.
This paper explores the existence of downward real wage rigidity (DRWR) in 19 OECD countries, ove... more This paper explores the existence of downward real wage rigidity (DRWR) in 19 OECD countries, over the period 1973–1999, using data for hourly nominal earnings at the industry level. Based on a nonparametric statistical method, which allows for country ‐ and year‐ specific variation in both the median and the dispersion of industry wage changes, we find evidence of some DRWR in OECD countries overall, as well as for specific geographical regions and time periods. There is some evidence that real wage cuts are less prevalent in countries with strict employment protection legislation and high union density. Generally, we find stronger evidence for downward nominal wage rigidity than for downward real wage rigidity.
We gratefully acknowledge the support and hospitality of our hosts, the European Central Bank. Th... more We gratefully acknowledge the support and hospitality of our hosts, the European Central Bank. The views expressed in this paper are those of the author(s) and not those of the funding organization(s) nor of CEPR, which takes
RÉSUMÉ ............................................................................................. more RÉSUMÉ ............................................................................................................................ 2 THE UNEMPLOYMENT PROBLEM A NORWEGIAN PERSPECTIVE................................ .......... 5
What is the economic role of credit rating agencies (CRAs), and how should they be paid? We study... more What is the economic role of credit rating agencies (CRAs), and how should they be paid? We study how credit rating agencies (CRAs) can serve as coordination device, and thereby prevent or cause ineffi cient liquidation of projects with a long horizon. We show that if CRAs can impact real outcomes, then their reputation concerns hamper truthful revelation of information, and, as a consequence, limit their ratings’informational content. We then show that equilibrium behavior is shaped by two prominent regimes: (i) an ‘optimistic’regime in which CRAs tend to give good ratings, and (ii) a ‘pessimistic’regime in which CRAs tend to give bad ratings. But both regimes are self-defeating: (i) only bad ratings do affect investors’ behavior in an optimistic regime while (ii) only good ratings affect investors’ behavior in a pessimistic regime. Existing evidence on the environment preceding the financial turmoil starting in 2007-2008 fits with our characterization of an optimistic regime. Henc...
This paper treats the oil market as an oligopoly with a competitive fringe. The oligopoly is assu... more This paper treats the oil market as an oligopoly with a competitive fringe. The oligopoly is assumed to consist of Egypt, Oman, Mexico, Malaysia and Norway plus all OPEC members. The remaining oil producing countries are included in a fringe which by assumption takes the oil price development as exogenously given. Outcomes with varying degrees of collusion within the oligopoly are specified. Intermediate cases are also studied, such as complete or partial cooperation within OPEC, but no cooperation between OPEC and any other countries in the oligopoly. The model is implemented in the PCbased MODLER software, and empirical results from the simulations on the different model versions are presented. Not to be quoted without permission from author(s). Comments welcome. THE OIL MARKET AS AN OLIGOPOLY Kjell Berger, Michael Hoel, Steinar Holden and . Øystein Olsen *
SSRN Electronic Journal, 2013
We examine fiscal adjustment episodes in 24 OECD countries in order to find how austerity affects... more We examine fiscal adjustment episodes in 24 OECD countries in order to find how austerity affects debt and growth, and whether the choice of fiscal instrument matters for the results. Influential existing studies argue that spending cuts are more likely to successfully reduce debt and enhance economic growth than tax increases. Our main innovations over these studies are to better account for initial conditions and to employ a novel and more precise measure of actual changes in fiscal policy. We find that whether a fiscal adjustment is successful in reducing debt depends on whether the adjustment was sufficiently large to remove the budget deficit. We find no indication that it matters whether the adjustment is achieved via spending cuts or tax increases, and this conclusion holds also for the effect on economic growth.
SSRN Electronic Journal, 2012
Fra 1999 og senere er publikasjonene tilgjengelige på www.norges-bank.no Working papers inneholde... more Fra 1999 og senere er publikasjonene tilgjengelige på www.norges-bank.no Working papers inneholder forskningsarbeider og utredninger som vanligvis ikke har fått sin endelige form. Hensikten er blant annet at forfatteren kan motta kommentarer fra kolleger og andre interesserte. Synspunkter og konklusjoner i arbeidene står for forfatternes regning.
SSRN Electronic Journal, 2000
International comparisons show that countries with coordinated wage setting generally have lower ... more International comparisons show that countries with coordinated wage setting generally have lower unemployment than countries with less coordinated wage setting. This paper argues that the monetary regime may affect whether coordination among many wage setters is feasible. A strict monetary regime, like a country-specific inflation target, to some extent disciplines wage setters, so that the consequences of uncoordinated wage setting are less detrimental than under a more passive monetary regime (eg a monetary union). Thus, the gains from coordination are larger under a passive regime. Under some circumstances a passive regime may induce cooperation in wage setting, and thus lower unemployment, when a stricter regime would not.
SSRN Electronic Journal, 2012
During the last 20 years, the importance of a number of behavioral features have been widely acce... more During the last 20 years, the importance of a number of behavioral features have been widely accepted within economics, and they are now regularly included in standard macro models. Where has this development led us? I argue that the insights from behavioral economics have led to important progress in our understanding of macroeconomic phenomena. One of the most important is the effect of fairness considerations on wages and employment relationships. Another important insight is that most or all individuals are affected by various behavioral features, which should be taken into account in the design of saving plans and pension schemes. A third insight is that plausible macro models provide large scope for important effects of sentiments and psychological factors. Future research should follow different routes, like incorporating behavioral features in standard models, improving estimated empirical models, and learning from case studies and historical episodes.
SSRN Electronic Journal, 2009
A number of recent studies have documented extensive downward nominal wage rigidity (DNWR) for jo... more A number of recent studies have documented extensive downward nominal wage rigidity (DNWR) for job stayers in many OECD countries. However, DNWR for individual workers may induce downward rigidity or "a floor" for the aggregate wage growth at positive or negative levels. Aggregate wage growth may be below zero because of compositional effects, for example that old, high-wage workers are replaced by young low-wage workers. DNWR may also lead to a positive growth in aggregate wages because of changes in relative wages. We explore industry data for 19 OECD countries, over the period 1971-2006. We find evidence for floors on nominal wage growth at 6 percent and lower in the 1970s and 1980s, at one percent in the 1990s, and at 0.5 percent in the 2000s. Furthermore, we find that DNWR is stronger in country-years with strict employment protection legislation, high union density, centralised wage setting and high inflation.
SSRN Electronic Journal, 1998
Within a simple formal model, we show that there is a link between workers' consumption patterns ... more Within a simple formal model, we show that there is a link between workers' consumption patterns and their preferred real wage. A large budget share of illiquid durable consumption goods (such as houses and cars) makes workers more willing to accept a low wage in order to reduce the probability of unemployment, but less willing to lower the real wage if labor demand unexpectedly falls. Moreover, as long as durable consumption goods are financed through imperfectly indexed credit, the budget share of illiquid durable goods affects the impact of inflation on the real wage. These predictions are confronted with data from sixteen OECD countries. We find that high household indebtedness lowers the natural rate of unemployment and increases real and nominal wage rigidity.
SSRN Electronic Journal, 2011
We investigate empirically the effect of government purchases on unemployment in 20 OECD countrie... more We investigate empirically the effect of government purchases on unemployment in 20 OECD countries, for the period 1960-2007. Compared to earlier studies we use a data set with more variation in unemployment, and which allows for controlling for a host of factors that influence the effect of government purchases. We find that increased government purchases lead to lower unemployment; an increase equal to one percent of GDP reduces unemployment by 0.2 percentage point in the same year. The effect is greater in downturns than in booms, and also greater under a fixed exchange rate regime than under a floating regime. JEL-Code: E620, H300.
SSRN Electronic Journal, 2014
Over the past 20 years, macroeconomists have incorporated more and more results from behavioral e... more Over the past 20 years, macroeconomists have incorporated more and more results from behavioral economics into their models. We argue that doing so has helped fixed deficiencies with standard approaches to modeling the economy-for example, the counterfactual absence of inertia in the standard New Keynesian model of economic fluctuations. We survey efforts to use behavioral economics to improve some of the underpinnings of the New Keynesian model-specifically, consumption, the formation of expectations and determination of wages and employment that underlie aggregate supply, and the possibility of multiple equilibria and asset price bubbles. We also discuss more broadly the advantages and disadvantages of using behavioral economics features in macroeconomic models.
SSRN Electronic Journal, 2003
Most wage-contracting models with rational expectations fail to replicate the persistence in infl... more Most wage-contracting models with rational expectations fail to replicate the persistence in inflation observed in the data. We argue that coordination problems and multiple equilibria are the keys to explaining inflation persistence. We develop a wage-contracting model in which workers are concerned about being treated fairly. This model generates a continuum of equilibria (consistent with a range for the rate of unemployment), where workers want to match the wage set by other workers. If workers' expectations are based on the past behavior of wage growth, these beliefs will be self-fulfilling and thus rational. Based on quarterly U.S. data over the period 1955-2000, we find evidence that inflation is more persistent between unemployment rates of 4.7 and 6.5 percent, than outside these bounds, as predicted by our model.
SSRN Electronic Journal, 2011
We study a search model with firing cost. We show that there exists an equilibrium with discrimin... more We study a search model with firing cost. We show that there exists an equilibrium with discriminatory hiring standards of worker only differing in an observable characteristic determining their type. Even though the firm can observe the workers' expected productivity at the hiring stage, it still may condition its hiring standard on group belonging, due to feedback effects of other firm' hiring standards. The model predicts higher unemployment rates, stricter hiring standards, longer tenure for discriminated workers and a positive relation between employment protection and relative unemployment rates for discriminated workers.
Tidsskrift for samfunnsforskning
What is the role of “large players”, e.g., hedge funds, in speculative attacks? Recent work sugge... more What is the role of “large players”, e.g., hedge funds, in speculative attacks? Recent work suggests that large players move early to induce smaller agents to attack. However, many observers argue that large players move late so as to benefit from interest rate differentials. We propose a model where large players can do both. Using data on currency trading by foreign (large) and local (small) players, we find that foreign players moved last in three attacks on the Norwegian krone during the 1990s. During the attack on the Swedish krona after the Russian moratorium in 1998, foreign players moved early. Gains by delaying attack were small, however, since interest rates did not increase.
2NON-COOPERATIVE Wage Bargatntng
The paper argtues that the Rubinstein perfect informat ion inf in j- te-hor izon al- ternat ing-o... more The paper argtues that the Rubinstein perfect informat ion inf in j- te-hor izon al- ternat ing-of fers model is problemat ic when appl ied to wage negot iat ions. A str ike or any other industr iaf act ion is not an automat ic consequence of a delay in reaching an agreement, because product ion can cont inue as normal- a l-so when negot iat ions take place. An inf in i te-hor izon al ternat ing-of fers model incorporat ing the choice of cal l ing a str ike is devel-oped. I t is shown that in th is model there j-s no longer a unique subgame perfect equi l ibr ium, and that str ikes wi th a length in real t i rne can occur in equi l ibr ium.
We provide a new explanation for why firms pay for general training in a competitive labor market... more We provide a new explanation for why firms pay for general training in a competitive labor market. If firms are unable to tailor individual wages to ability, for informational or institutional reasons, they will pay for general training in order to attract better quality workers. The market provision of training may well exceed the first best level. Our explanation relies on wage compression within skill categories, while imperfect competition based explanations rely on wage compression across skill categories. JEL Categories: J31, D82. ∗Thanks to Alison Booth, Espen Moen and seminar participants at Essex for useful comments. V. Bhaskar thanks the Economic and Social Research Council, UK for its
We gratefully acknowledge the support and hospitality of our hosts, the European Central Bank.
This paper explores the existence of downward real wage rigidity (DRWR) in 19 OECD countries, ove... more This paper explores the existence of downward real wage rigidity (DRWR) in 19 OECD countries, over the period 1973–1999, using data for hourly nominal earnings at the industry level. Based on a nonparametric statistical method, which allows for country ‐ and year‐ specific variation in both the median and the dispersion of industry wage changes, we find evidence of some DRWR in OECD countries overall, as well as for specific geographical regions and time periods. There is some evidence that real wage cuts are less prevalent in countries with strict employment protection legislation and high union density. Generally, we find stronger evidence for downward nominal wage rigidity than for downward real wage rigidity.